High Investment Fees: Public Enemy #1

 

Lower prices are often synonymous with value. Surprisingly, the same is true when selecting investments. Look for the lowest-priced, diversified exchange-traded funds (ETFs), the cheapest mutual fund or any investment vehicle or manager that ranks among those with the lowest costs. For top long-term returns, be more focused on the cost of your investments than in seeking the top-performing fund.

How can I make such a definitive statement? Because the research supports it.

Morningstar reports that the average actively managed stock mutual fund sports an annual expense ratio of more than 1.4 percent. (Compare that to the average ETF fund fee of 0.2 percent.) If we assume a long-term return on stocks of approximately 9 percent and an average annual inflation rate of 3 percent, we obtain a real rate of return of 5.8 percent annually. Before accounting for the compounding of the expense ratio — yes, fees compound and erode total return just as dividends and interest compound and increase total return — you can see that an average annual fee of 1.4 percent consumes a significant portion of the average annual real total return of stocks of 5.8 percent.

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The Arizona Republic

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Chart a Course of Financial Discipline

Most of us won’t have 97 years to save and invest. But Stephanie Mucha, who recently was featured in Barron’s, has. Ninety-seven long and productive years. And she has made the very most of each one.

Mucha’s peak annual earnings of $23,000 were modest even in 1994, when she retired. Still, she has managed to grow her assets to more than $5.5 million. Mucha has given $3 million to charity and retains $2.5 million — still percolating — in her portfolio. Her goal: to donate $6 million before she dies.

Mucha is obviously blessed with longevity, an enviable work ethic and a high financial IQ. But she doesn’t have any unusual advantages. She reads financial publications and uses good sense and, incredibly, does not even own a computer. Still she has succeeded. Fabulously.

Read the rest of Stephanie Mucha’s story here: The Arizona Republic

Think of Retirement As 20 Years of Unemployment

 

I hope you will read my current column in the The Arizona Republic.  I discuss the disconnect between most individuals when asked about their readiness for retirement (the majority admit they are not ready) and how they plan to spend their retirement (in luxury!).  And what to do about it.

My book:  The Women’s Guide to Successful Investing is about to be released.  You can pre-order on Amazon.com whose editors just named the book a:  “Best Business and Investing Book of the Month!”